By Maria-Konstantina (Mariadina) Lili-Kokkori, researcher of the unit «International & European Law»

Within the new era of international economic relations, the need for the protection of investments under the international law and not only under the customary rules has been increased. This has been codified by granting more protection on the basis of treaties as well. Countries started conclude investments treaties, the bilateral investment treaties (BITs). In this paper it will be examined first the purpose and the objective of a BIT, secondly the standards of protection upon the breach of a BIT, and specifically when this BIT refers to environmental considerations. Finally, it will be examined the case of Peter Allard v. the Government of Barbados, in which the investor argued breach of the standards of protection and degradation of his investment by bringing claims arising out of alleged environmental damage and indirect expropriation by the government of Barbados. The question is, does the host state have the responsibility to protect the foreign investment under environmental law, and under which law may the investor argue the breach?

1.International Investment Law: Purpose and objective of a BIT

The developing countries have come to rely on private foreign capital like technological or management skills from capital-exporting countries. For the protection of the private foreign capital, countries rely on the drafting of Bilateral Investment Treaties (BITs) between the parties, in order for the investment to be safeguarded. BITs set the legal rules to protect the foreign property, for the reason that they involve interests or the investor and interests of the host country. (1) The negotiation and conclusion of a BIT is a significant element for the hosting country which means that it will welcome the foreign investment and protect and facilitate certain foreign ventures. (2)

For some capital exporting States the existence of a BIT is a pre-condition for granting investment insurance to the prospective investor. (3) Investors and host States often negotiate investment agreements. There is not a general pattern applicable to all situations that has emerged in practice. For this reason investment contracts had to categorize the rules on which the parties agreed and which include the applicable law for the investment, and also provisions for the settlement of investment disputes.

There is case law regarding the definition of the investment agreement. In Duke Energy v Ecuador, (4) the Tribunal held that the investment agreement must be entered into by the host state and the investor and not by the host state and the company established by the investor. Under the question of interpretation, BITs considered as treaties, and have to be interpreted with respect to Art. 31of the Vienna Convention of the Law of the Treaties (VCLT) (5).

2. International Investment Law: Standards of Protection

Treatment in international investment law is the legal regime which is applied once the BIT is admitted between the host State and the investor. The majority of BITs subscribe to the common standards defined by the terms of a) Fair and Equitable Treatment (FET), b) Full Protection and Security (FPS), c) Non-discrimination, d) National Treatment, e) Most-Favoured-NationTreatment f) the Umbrella Clause etc. The purpose of the clause as used in BIT practice is to fill gaps, which may be left by the more specific standards, in order to obtain the level of investor protection intended by the treaties. (6)

Most BITs and other investment treaties provide for fair and equitable treatment (FET) of foreign investments.The main purpose of this clause is to provide a basic and general standard which is not regulated in domestic law. In practice, the majority of successful claims pursued in international arbitration are based on a violation of the FET standard.In some treaties the principle is combined with the provisions on the protection and security of the investment. (7) Other treaties have combined the clause with the provisions on prohibition of discriminatory measures, or with national and MFN standards. Some treaties considered it necessary to regulate this standard as an express obligation rather than relied on the provisions of international law. (8) On the other hand, some treatiesrefer to the international law provisions, and this is not applied only in US treaties. (9) However, in the North American Free Trade Agreement (NAFTA), the FET standard is regulated in accordance with the minimum standard of customary international law. (10) The substance of the FET standard overlaps with the meaning of good faith in its broader setting, including the estoppel. In practice the FET standard may offer redress where the facts do not support a claim for expropriation. (11)

The two terms of the standard, fair and equitable, are considered to represent a single, united standard, and not separated. FET is an autonomous standard and is meant as a rule of international law and is not determined by the laws of the host state. Tribunals have emphasized the independence of the FET standard from the national treatment standard. (12)The FET standard may be violated when the foreign investor receives the same treatment as investors of the host state’s nationality.For this reason it has been pointed out the vagueness of the standard but this does not mean that Tribunal will not take into consideration the case law and the sources of customary and general international law. (13)

In a number of cases the tribunals have tried to give a more specific definition to the FET standard by imposing general definitions. The most known definition is set out in the Tecmed case (14) in which the tribunal held that the withdrawal of a license for a landfill for hazardous waste was violation of the FET standard. Tribunals have also applied other terms in order to define the term of the FET standard. This clause is characterized by stability and the protection of the investor’s legitimate expectations which have to be based not to expectations but objective facts. (15) Another issue is the transparency. Also, the FET standard has shown compliance with contractual obligations, procedural and due process, good faith, and freedom from coercion and harassment.

A second standard of protection is the Full Protection and Security (FPS), which provides that the host state has the general obligation of due diligence in order to protect the foreign investment. Some BITs though have combined the application and regulation of the FPS standard with the existence of the FET standard. (16)Under this clause of protection, some tribunals have held that there is a standard of liability which means that the host state has the general obligation of due diligence, in order to avoid investments harassment and any other violations. There is also a duty for legal protection to the investments. In the BiwaterGaujf v Tanzania case, the tribunal held that ‘’Full protection implies ‘a State’s guarantee tostability in a secure environment, physical, commercial and legal’’. (17)

3. International Investment Law: Breach of BIT – Peter Allard v. Barbados

3.1 The Parties’ Arguments regarding the alleged breach of FET

In cases where an investor’s activity depends upon the host State’s implementation of domestic or international environmental law an investor may bring aclaim before an international investment tribunal for breach of the above mentioned standards of protection. In this case,the claims would remain investment claims, albeit ‘environmentally-scented’ investment claims. InAllard v. Barbados, (18) the dispute concerned the investor’s eco-tourism project, namely the GraemeHall Nature Sanctuary and was related to State’s failure to enforce its environmental regulation, from which the investor argued that the failure constituted a violation of its rights underan international investment agreement, and requested compensation from the host State.

The aim of the sanctuary was to operate a self-sustaining facility for reasons of environmentalconservation. Mr.Allard argued that Barbados had failed to comply with the Convention onWetlands of International Importance (RAMSAR Convention), (19) the Convention on BiologicalDiversity, (20) as well as domestic environmental legislation of the host State. Allard argued also that Barbados had violated, mainly, the FET obligation, and the obligation to accord FPS provided for in the BIT between the Government of Canada and the Government of Barbados. The investor arguedthat the FET violation caused due to a change of land use that allows run off of pollution into the sanctuary and he underlined that he made the investment in the sanctuary because of Barbados’ previous regulatory frameworks that he believed will protect the environment. (21)He claimed that upon the failure of the Sewage Treatment plant, operated by Barbados, there was a discharging of raw sewage into the Graeme Hall Swamp. (22) Barbados mismanaged the Sluice Gate through its actions and omissions hadnot mitigated the significant degradation of the environment of the Sanctuary thereby negativelyaffecting its tourist experience. Finally, in his view, Barbados had failed to enforce the Marine PollutionControl Act. (23)

Barbados rejected the claims. In its view, Allard had closed his Sanctuary for business reasons, therehad not been environmental degradation from the time the first investment was made in 1996 to theclosure as an ecotourism attraction in 2009, between actually 1994-2009 the conditions were stable or even improved, the Zoning Changes had a positive environmental impact on the Sanctuaryand even if a degradation took placeis was caused by external causes. Lastly, Barbados argued that it had taken appropriate action for theprotection of the environment in the Sanctuary, and that any degradation was due to human or natural events. (24)

According to the FET provision in the BIT, “Each Contracting Party shall accord investments orreturns of investors of the other Party: (a) a fair and equitable treatment in accordance with principlesof international law.” (25) Allard arguedthat Barbados represented to him that it would “uphold its environmental policies, particularly thosethat reflected a commitment to conservation and protection of the biodiversity of the Sanctuary and maintain the Sluice Gate’’. (26) The Tribunal held that Barbados had not created any expectation regarding the environmental protection of the Sanctuary. (27) Likewise, the Tribunal did not find any evidence in the sensethat Barbados had made representations to the investor that it would operate the Sluice Gate in a waythat would protect “the interests of Mr Allard in the management of the Sanctuary.

The Tribunal held that an investor who has already made an investmentcan still claim violation of legitimate expectations when the host State subsequently makes specificrepresentations to the investor and the latter makes additional investments in reliance of theposterior representations. Damages can be claimed only regarding the later in time investment, and that an investor has to offer evidence of the reliance, an issue Allard disregarded. (28)

3.2 The Parties’ Arguments regarding the alleged breach of FPS

Article II (2) relevantly provides that ‘’Each Contracting Party shall accord investments or returns of investors of the other Contracting Party: [. . .](b) full protection and security [. . .]’’ In essence, the Claimant complains that Barbados breached the FPS standard by failing to a)repair and regularly operate the Sluice Gate, b) take the other specific steps listed at paragraph 234 to reduce the run-off of contaminants into the Sanctuary and c) enforce the Marine Pollution Control Act.

In substance, the Parties agree that none of these actions were taken by Barbados.With regard to the first two complaints, it may be accepted that the record supports the Claimant’s contention that Barbados was aware of the potential environmental importance of the Sluice Gate and the possible presence of contaminants in both the natural run-off to the Sanctuary and in any emergency discharge from the Barbados South Coast Sewage Plant. The Tribunal further finds, however, that, being aware of the environmental sensitivities of the Sanctuary, Barbados took reasonable steps to protect it.It is accepted by the Claimant that the obligation of the State to provide the investment with FPS is not one of strict liability, but of “due diligence” or “reasonable care’’.The Tribunal is also not satisfied that Barbados breached the FPS standard in any respect by failing to enforce the Marine Pollution Control Act. On no view is the claim sufficiently particularized.

The Tribunal agrees with the Respondent’s submission that the Claimant has failed to establish that Barbados violated its obligations of the FPS standard. Even accepting the Claimant’s articulation of the FPS standard as including an obligation of the host State to protect foreign investments against environmental damage, and assuming (quod non) that environmental damage was proven in the present case, the Tribunal finds that no violation of the FPS standard arising under Article II(2)(b) of the BIT is established.

The tribunal upheld the Claimant’s argument, stating that “the reference to “such rulesof general international law as may be applicable” in the BITs does not incorporate the universe ofinternational law into the BITs”, and denied the application of the Petitioners. (29) In a similar fashion,the tribunal in Biloune v. Ghana, when considering the Claimant’s international human rights lawclaim, it decided that, no matter how compelling a human rights claim from the part of the Claimantwould be, it lacked jurisdiction to address a claim of human rights as an independent cause ofaction. (30)

4. Concluding remarks

With respect to alleged violations of other standards of protection stipulated in the Canada-Barbados BIT, the Tribunal likewise rejected Allard’s claims, primarily due to his failure to present convincing evidence leading to the violation of the BIT Standards of Protection by the Respondent’s. In addition, with respect to the BIT Standard of Protection on Full Protection and Security, the Tribunal found that Barbados had exercised the required level of due diligence. (31) The conclusions reached by the aforementioned case are that environmental claims before investment courts are limited and most investment courts and tribunals decide upon the breach of BITs. For an environmental claim to be successfully brought before aninvestment tribunal there needs to be either a provision in the arbitration clause and the substantiveprovisions of the applicable treaty. In most cases,environmental considerations find their way into investment arbitration through investmentclaims on breaches of standards of protection. (32)


  1. Dozler Rudolf and Schreuer Christophe, Principles of International Investment Law, Oxford University Press, 2012, p. 79.
  2. Dozler Rudolf and Stevens Margrete, Bilateral Investment Treaties, MartinusNijhoff Publishers, 1994, p.12.
  3. Meron T, Investment Insurance in International Law, 1976.
  4. Duke Energy v Ecuador, Award 18 August 2008, ICSID Case ARB/04/19, available here.
  5. Vienna Convention of the Law of the Treaties (VCLT), 1969, 1155 UNTS 331. Art. 31 para 1 states that ‘’a treaty shall be interpreted in good faith in accordance with the ordinary meaning to be given to the terms of the treaty in their context and in the light of its object and purpose’’.
  6. Sempra Energy International v. the Argentine Republic, ICSID Award Case No. ARB/02/16, 28 September 2007, para 297, available here.
  7. See e.g. Art 2, UK – Sri Lanka BIT (1980).
  8. See the Barcelona Traction case, ICJ Rep. (1970) 32, available here.
  9. See US – Senegal BIT (1983), Art 2, para 4. In the BIT with Morocco (1985), the clause provides that investments shall enjoy full protection and security ‘’in a manner consistent with international law’’.
  10. See North American Free Trade Agreement (NAFTA), in 32 ILM 289 (1993).
  11. PSEG v Turkey, Award, 19 January 2007, para 238, and Continental Casualty v Argentina, Award, 5 September 2008, para 254.
  12. Azurix v Argentina, Award, 14 July 2006, paras 407-8 and E l Paso v Argentina, Award, 31 October 2011, paras 228-31.
  13. ADF v United States, Award, 9 January 2003, para 184.
  14. Tecmed v Mexico (ICSID Case No. (AF)/00/2) available here.
  15. Suez v. Argentina, Decision on Liability, 30 July 2010.
  16. See supra note 9 above.
  17. Biwater G aujf v Tanzania, Award, 24 July 2008, para 729.
  18. Peter A. Allard (Canada) v.The Government of Barbados, PCA Case No.2012-06 [hereinafter Allard v. Barbados]Notice of Dispute of 8 September 2009 paras.10-13.
  19. Ramsar Convention available here.
  20. Convention on Biological Diversion available here.
  21. Peter Allard v. Barbados, Investor argues breach of environmental laws, Stockholm Chamber of Commerce, ISDS Blog, available here.
  22. see footnote 18 above, paras 50 and 239.
  23. see footnote 18 above, para 51.
  24. see footnote 18 above, para 52.
  25. see footnote 18 above, para 169.
  26. see footnote 18 above, para 172.
  27. see footnote 18 above, para 208.
  28. see footnote 18 above, paras 218 and 221.
  29. Bernhard von Pezold and Others v. Republic of Zimbabwe, ICSID Case No. ARB/10/15 Procedural Order No.2 of 26 June 2012, para 57.
  30. Antoine Biloune v. Ghana Investment Center, UNCITRAL Award on Jurisdiction andLiability of 27 October 1989, paras.202-203.
  31. Oproglidou Maria, Allard v. Barbados: Environmental Issues under the Guise of International Investment Disputes, MEPIELAN Centre, 2016, available here.
  32. Viñuales J, Foreign Direct Investment and the Environment in International Law (Cambridge University Press 2012) p.91